The fuel of the blockchain
TOKEN FRENZY
Important disclosures appear at the back of this report
GP Bullhound LLP is authorised and regulated by the Financial Conduct Authority
GP Bullhound Inc is a member of FINRA
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Dealmakers in Technology
April 2018
5
04 THE VIEW FROM GP BULLHOUND


Sebastian N. Markowsky, GP Bullhound
06 CHAPTER 1: HISTORY & OVERVIEW OF THE BLOCKCHAIN UNIVERSE
12 CHAPTER 2: FUNDING ACTIVITY IN BLOCKCHAIN - VENTURE CAPITAL & ICOS
22 CHAPTER 3: LEADING PROTOCOLS & BLOCKCHAIN ECOSYSTEMS

24 EXPERT VIEW


Joseph Lubin, Co-founder Ethereum & Founder ConsenSys
26 CHAPTER 4: KEY CHALLENGES TO BE SOLVED

28 BLOCKCHAIN SCALABILITY

29 EXPERT VIEW


Prof. Emin Gn Sirer, Associate Professor at Cornell University

30 DECENTRALISATION OF EXCHANGES

31 EXPERT VIEW


Peter Czaban, Polkadot Contributor & CEO Web3 Foundation

32 STAYING PRIVATE

33 EXPERT VIEW


MacLane Wilkison, Founder NuCypher

34 EFFECTIVE GOVERNANCE

35 EXPERT VIEW


Tatu Krki, Communications Lead Aragon

36 CONSENSUS EFFICIENCY
37 CHAPTER 5: OUTLOOK - FINAL REMARKS
42 METHODOLOGY
Dealmakers in Technology
CONTENTS
GP BULLHOUND: TOKEN FRENZY
3
5
GP BULLHOUND: TOKEN FRENZY
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Sebastian N. Markowsky
Director
Cryptographically enabled virtual currencies equivalent
to pieces of code: Can this be sustainable? Do they carry
any value at all? Are they secure? While these questions
are controversially debated for major cryptocurrencies
("cryptos") like Bitcoin or Ethereum, it becomes a totally
unsolvable task when looking at the plethora of altcoins
or tokens that exist. In our view, the underlying technology
has the potential to become a catalyst for the most pivotal
technological transformation. However, we are skeptical
about the "Token Frenzy" happening at the moment.
With over USD 800bn total market cap at the beginning
of 2018, total funding of almost USD 5bn in 2017 alone and
a volatility that has created greed and fear cycles in their
most drastic form, it is no wonder the sector has captured
global awareness.
We expect the crypto market to materially mature and
the token phenomenon to undergo major changes over
the months to come, not least driven by regulation.
Regardless of the immaturity of the current activities, the
ongoing buzz will likely give birth to a quantum leap of
technological achievements in the distributed ledger
technology space.
What began among an evangelist group of academics,
computer scientists and developers has now captured the
zeitgeist and captivated the technology industry. While the
media examines every fluctuation of the cryptocurrency
markets, investors have, in 2017, poured almost USD 5bn
into the industry through venture capital and initial
coin offerings.
This rise has taken the better part of a decade, beginning
in 2009 with the introduction of the first peer-to-peer
cryptocurrency, Bitcoin. For many, this currency and
its underlying distributed ledger technology remain
synonymous with blockchain. In truth, Bitcoin's core
technology offered little more than a payment system
and its true value only lies in its ability to demonstrate the
long-term potential of distributed ledger technologies.
The vision depicted by early evangelists was one of
decentralisation of power, distrust of traditional institutions
and an infrastructure based on encrypted, trustworthy
transactions. While this vision has since been applied to
industries as diverse as supply chain logistics, finance,
winemaking and insurance, the first adopters of Bitcoin
were far from mainstream software developers. Its
extensive use on 'the dark web' by suspected criminal
groups did little to bolster the technology's credentials
in the public eye.
From these origins, few would have expected blockchain's
climb to the top of the global economic agenda. The
transition that has taken place in recent years with
blockchain moving from hype to adoption can be
substantially credited to Vitalik Buterin, the pioneer
behind Ethereum. In 2013, as a 19-year-old cryptocurrency
researcher and programmer, Buterin created his version
of a blockchain-based protocol, which today is one of
the largest, most influential distributed ledger technologies.
Ethereum differed from Bitcoin in a number of important
ways. First, Buterin created a platform that could be used
by everyday developers. To do this he decoupled the
protocol and application layers, creating a platform for
decentralised applications that allowed non-blockchain
experts to contribute. Second and perhaps most crucially,
Buterin built a smart contract functionality into Ethereum.
These smart contracts cryptographic agreements
enforced by digital, rather than legal, code have a
potentially endless number of commercial applications
across industries as diverse as finance, energy, healthcare,
and logistics.
The first revolutionary use case of the Ethereum protocol,
particularly its approach to smart contracts, was the initial
coin offering (ICO). The ICO is an entirely new form of
fundraising that has transformed the way start-ups can
access capital. Being an automated form of crowd funding
through blockchain technology, ICOs became an overnight
phenomenon, with around USD 4bn raised in 2017 alone.
This momentum appears to be continuing into 2018.
Telegram, the Russia-founded instant messaging service,
plans to raise USD 2bn through its own ICO this year. As a
result of these larger and larger funding rounds, the bar for
the average ICO is rising every day and increasingly, only
leading projects with reputable teams and backers
are succeeding.
In contrast, the broader strategic applications of blockchain
technologies have yet to achieve widespread adoption.
While Ethereum has managed to build a strong, mutually
supportive, talented community led by inspirational leaders,
the platform continues to face significant challenges. As
highlighted by the contributors to this report, the challenges
around security, privacy, and scalability are keeping the
blockchain community awake at night.
THE VIEW
From GP Bullhound
From its inception, the decentralisation of the blockchain
ecosystem has tended to inspire an anarchic system of
governance. Given that the technology remains immature,
the market is largely driven by speculation, suffers from
insufficient transparency and close to non-existent regulation,
and is plagued by constant rumours of fraudulent activity.
This has left many strategic and institutional investors wary of
the technology.
Nonetheless, this has done little to deter retail investors buying
into the cryptocurrency boom. The overall market for alternative
currencies exploded in 2017, reaching a total market cap
of over USD 800bn towards the end of the year. Ether the
cryptocurrency behind the Ethereum protocol had risen to a
market cap of USD 80bn by the end of 2017, and continued to
grow to USD 130bn by mid-January 2018. Only two years after
its creation, the widespread use of Ether in ICOs had driven its
value to historic highs that put the currency to the top of the
media, political, and economic agendas.
In spite of concerns of a boom and bust cryptocurrency market,
the underlying promise of blockchain remains intact. Through
our detailed analysis of the ecosystem laid out in this report, we
have encountered exceptional projects working on near-term,
real-life uses for blockchain, such as bringing transparency
into the supply chain of food products and conflict minerals,
creating a decentralized, secure cloud storage and computing
marketplaces as well as solving challenges in international
logistics. However, core activity is still focused on building next
generation base protocols, infrastructure projects and developer
tools. Distributed apps seem to be an early area yet to engage.
Overall, the market is still immature, and the largest rounds raised
by blockchain focused companies are still far behind of what we
see in more mature sectors; even ICO funding cannot compete
with the mega-rounds we see in the broader tech investment
space. As technology becomes more reliable and secure,
visibility of near-term use cases increases and investors become
more sophisticated on a broader scale, we expect fundraising
volumes to rise substantially.
All this adds up to an exciting future for blockchain. At GP
Bullhound, we have worked side-by-side with a generation
of leading entrepreneurs that have transformed the digital
economy worldwide. We are prepared to harness this network,
our dealmaking experience and technological and financial
expertise to enable the rise of a new generation of technology
pioneers.
EXECUTIVE SUMMARY
7
GP BULLHOUND: TOKEN FRENZY
6
HISTORY & OVERVIEW
of the blockchain universe
EVOLUTION OF BITCOIN & ALTCOINS
A retrospective of cryptos
Cryptocurrency market capitalisation development and major milestones
December
2005
October
2009
November
2013
March
2016
Mid-2017
& ongoing
February
2018

Ongoing
Nick Szabo lays out the foundation for Bitcoin by releasing a paper
titled 'Bit Gold'. It outlines some of the concepts that would
later be implemented in distributed ledger technology.

Bitcoin whitepaper is published by an unknown author under a
pseudonym Satoshi Nakamoto.
Ethereum whitepaper is released. The following year the project
commences and in 2015 raises funds through one of the first
ICOs ever.
Cabinet of Japan approves a bill recognising virtual currencies
as payment method. The country becomes the first major
economy to do so.
During an unprecedented 'ICO wave', blockchain start-ups
raise funds in the scale of USD billions. This still relatively new
form of financing catches the eye of regulators.
After weeks of speculation, China blocks internet access to
foreign crypto exchanges, citing 'financial risks' associated
with crypto trading.
Regulator scrutinization of ICOs and exchanges regarding KYC
and AML compliance continues to grow; the role of of non-profit
foundations in certain cases remains unclear; types of token and
connected rights continue to multiple.
Source: GP Bullhound analysis based on Coinmarketcap and publicly available data as of March 5, 2018.
Current share of total market capitalisation
41%
18%
8%
5%
27%
Bitcoin
Ethereum
Ripple
Bitcoin Cash
Other
2010
2012
2014
2016
2017
2018
March 5,
2018
USD
470.5bn
January 8,
2018
USD
828.5bn
CHAPTER 1
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GP BULLHOUND: TOKEN FRENZY
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Transaction &
payment services
Ecosystem
Cryptocurrency
exchanges &
trading platforms
Social, games
& gambling
Identity, authentication
& security
Enterprise
blockchain solutions
Other
Ethereum
WAVES
Bitcoin
NEO
Own base protocols
BLOCKCHAIN TECHNOLOGY UNIVERSE
Overview of selected base protocols and dApps
1) These companies use directed acyclic graphs which is a blockless distributed ledger technology.
2) Not exclusive to Ethereum, based on publicly available information.
3) Scalability layer that can be ported to other blockchains (e.g. Litecoin).
CHAPTER 1
APPLICATION CATEGORYBASE LAYER PROTOCOL
NVO
Bitcoin Cash
Bitcoin
(3)
(1)
(1)
(1)
(2)
Cent
11
GP BULLHOUND: TOKEN FRENZY
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MVPs IN THE BLOCKCHAIN SECTOR
The people behind Bitcoin, Ethereum, etc.
HAL FINNEY
Bitcoin Pioneer
NICK SZABO
Cryptographer
Blogger
Supporter
Co-Founder
& Chairman
Tech &
CryptoInvestor
5th richest person
worldwide
(Forbes)
Board
Member
Member of original
core BTC
development team
Previously Software
Engineer at AirBnb
& CarWoo
Founder & CEO IOHK
(Ethereum Classic, Cardano)
Former member of Bitcoin
Foundation
Founder Mattereum Strategic
Architect at ConsenSys
Designer of Dubai's national
blockchain strategy
Founder &
CEO ConsenSys
Leader of Ethereum
Council and research team
Founder of Jaxx
& Decentral
Author of Polkadot
whitepaper
Advisor for numerous
projects
Co-Founder of Bitcoin
Foundation and founder
of bitcoin.com
Leading figure in Bitcoin
community advocating
Bitcoin Cash
Pioneer in
cryptocurrency
and smart contracts
Author of Bit Gold
paper in 2005
CEO at Blockchain
Lab
Former Director
at coinbase
Founder & Executive
Chairman at Blockchain
Research Institute
Co-Author of 'The
Blockchain Revolution
Crypto Valley
Association
Global Blockchain
Business Council
Forbes editor
(Blockchain
and Fintech)
Podcast 'Unchained'
Co-presenter
of Kaiser report
JOSEPH LUBIN
Founder
Ethereum
ANDREAS
ANTONOPOLOUS
Bitcoin Expert
GAVIN ANDESEN
Founder BTC
Foundation
MIKE
NOVOGRATZ
CEO Galaxy
Expert
WINKLEVOSS
BROTHERS
Internet
Entrepreneurs
STEPHEN
BROTHERS
Blockchain
Capital
MARC
ANDREESSEN
Founder
a16z
BARRY SILBERT
Digital Currency
Group
ALBERT WENGER
Managing
Partner USV
OLAF
CALSON-WEE
Founder
Polychain
Capital
JOSHUA SEIMS
Founder
MetaStable
Capital
NAVAL RAVIKANT
Founder Angel List
BROCK PIERCE
CEO Bitcoin
Foundation
ROGER VER
Blockchain
Investor
SATOSHI NAKAMOTO
Aurthor(s) of Bitcoin
whitepaper
VITALIK BUTERIN
Author of Ethereum
whitepaper
TIM & BILLY
DRAPER
Draper
Associates
LAURA SHIN
Journalist
DON
TAPSCOTT
Professor &
Author
OLIVER
BUSSMANN
Fintech
Expert
MAX KEISER
Journalist
INDUSTRY EXPERTS
CHRIS LARSEN
Founder
Ripple
VINEY GUPTA
Founder
Ethereum
CHARLES
HOSKINSON
Founder
Ethereum
GAVIN WOOD
Founder & former
CTO Ethereum
BRIAN
ARMSTRONG
Founder
Coinbase
CALIN CULIANU
BTC Cash
Contributor
CHARLIE LEE
Creator Litecoin
ANTHONY DIIORIO
Founder
Ethereum
Receiver of first
ever Bitcoin
payment
Author
'Mastering
Bitcoin' and
'The Internet
of Things'
Former Relationship
Current Relationship
Investment
KATHLEEN &
ARTHUR BREITMANN
Founders
Tezos
CHAPTER 1
? ?
ALTCOINS
INVESTORS
ETHEREUM
BITCOIN
13
GP BULLHOUND: TOKEN FRENZY
12
Leading blockchain investors are almost exclusively based in the US. These investors are largely general
technology venture capitalists that have shifted their focus towards blockchain technologies.
European blockchain funding is currently experiencing strong momentum due to a large base of top
blockchain talent, particularly in Berlin and Zug (Switzerland). Still, most investments into European blockchain
companies originate from the US. While there is a vibrant scene of angels and seed investors that have shifted
towards crypto investments, only a few funds of meaningful size currently focus on the space.
Asia is also picking up pace quite fast with a number of leading entrepreneurs in the region having realised
the potential of blockchain. These investors and supporters often focus on local blockchain projects.
Venture capital funding into blockchain companies, by region
Source: Pitchbook and publicly available data.
2015
2015
2015
2017
2017
2017
447
152
111
247
50
45
(USDm)
Venture capital
funding volume
(2015-2017)
CAGR
75%
57%
35%
VENTURE CAPITAL FUNDING
Strong momentum in Europe
North America
Europe
Asia
FUNDING ACTIVITY
IN BLOCKCHAIN
Venture capital & ICOs
CHAPTER 2
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GP BULLHOUND: TOKEN FRENZY
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Peter
Thiel
Naval
Ravikant
Top 10 blockchain companies by cumulative venture capital funding (2014-2017)
Cumulative venture capital funding (USDm)
Selected investors
Source: Pitchbook and publicly available data.
251
121
136
116
100
94
90
77
71
107
VENTURE CAPITAL BLOCKCHAIN TARGETS
Venture capital activity remains early stage
The 10 best funded blockchain companies combined only accumulated
USD 1.3bn of venture capital funding between 2014 and 2017
Investors by number of blockchain companies in which they have invested
Investors with holdings in 6-8 blockchain companies
Source: Pitchbook and publicly available data. Note: Includes both past and current investments.
1) Including investments by CEO Barry Silbert. 2) Companies linked to Adam and Timothy Draper (who are father and son).
3) Including investments by Founder & Managing Director Timothy Draper.
USA
Asia
45
27
17
14
11
9
9
9
9
9
11
(2)(3)
(2)
(1)
MOST ACTIVE INVESTORS
Regional concentration is high
9 out of the top 10 blockchain investors are based in the US
Top 10 investors made 13.3% of total investments from 2015-2017
Naval Ravikant
Founder of Angelist
Ben Davenport
Founder of BitGo
CHAPTER 2
17
GP BULLHOUND: TOKEN FRENZY
16
Total venture capital funding
vs. ICO funding (USDm)
Top 10 ICOs with prior
venture capital funding
Source: Pitchbook, Cryptocompare, Coinmarketcap, ICO Bench, ICO Bazaar, ICO Drops and publicly available data.
Note: Includes disclosed venture capital rounds. Includes ICOs with >1 USDm funds raised and ICO end date between 2015 and 2017.
1) Kik did not start as blockchain project but raised significant ICO funding. This resulted in a distortion of the data presented.
181.4x
4.8x
22
105
0.8x
121
98
14.1x
4
59
11.8x
5
53
9.3x
6
52
34
45
1.3x
5.1x
7
36
ICO
Venture Capital
457
85
709
4,044
341
5
2015
2016
2017
23.2x
232
10
1
145
(1)
72.2x
1
80
ICO FUNDING BOOM
Funding explosion in 2017
For blockchain companies ICO funding outperforms venture capital funding by a factor of 5,
while 1 USD of venture capital funding usually translates into over 4 USD of ICO volume when
looking at the top 10 ICO rounds
Due to the surge in 2017, ICOs now constitute
around of all funding in blockchain start-ups
in 2015-2017
Projects with the potential to generate
traction near term prefer ICO funding. Longer
term ecosystem projects are less suited for
coin offerings
ICO vs. venture capital funding volume across categories (2015-2017)
Transactions & payment Services
Social, games & gambling
USD 1,011m
USD 786m
Cryptocurrency exchanges & trading
Identity, authentication & security
USD 1,451m
USD 407m
Ecosystem
Other (1)
USD 946m
USD 1,040m
Source: Pitchbook, Cryptocompare, Coinmarketcap, ICO Bench, ICO Bazaar, ICO Drops and publicly available data.
Note: Includes disclosed venture capital rounds. Includes ICOs with >1 USDm funds raised and ICO end date between 2015 and 2017.
1) Other includes Cloud Services, Enterprise Blockchain Solutions, Supply Chain Solutions and companies without blockchain focus.
54%
46%
9%
91%
17%
83%
15%
85%
37%
63%
24%
76%
USD
5,642m
ICO
Venture Capital
27%
73%
INVESTOR FOCUS
Venture capital vs. ICO preferences
CHAPTER 2
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GP BULLHOUND: TOKEN FRENZY
18
With the rapid rise of the ICO funding market, the period from venture capital funding to the ICO has
shortened significantly. This is partly driven by the fact that venture capital funding typically available for a
couple of years of development was completely overtaken by ICOs as a relatively young exit route promising
more or less similar exit times.
As shown in the graph, many younger companies pursuing an ICO have completely ignored venture capital
funding and started raising money through a private pre-ICO round, followed up by a public ICO.
However with the predicted cooldown of the ICO market, we expect to see venture capital funding picking
up versus ICOs and periods of venture capital funding before ICOs increasing. Venture capital with a strong
understanding and hands-on mentality that can add value to a proposal and its execution will clearly win
over crowd investor money.
Number of years of venture capital funding prior to ICO vs. year founded
Horizontal axis denotes founding year
Vertical axis denotes time period between year founded and the ICO financing round
Bubble size denotes number of companies / projects for a given founding year and time period
Source: Pitchbook, Cryptocompare, Coinmarketcap, ICO Bench, ICO Bazaar, ICO Drops and publicly available data.
Note: Includes disclosed venture capital rounds. Includes ICOs with >1 USDm funds raised and ICO end date between 2015 and 2017.
RETURN OF VENTURE CAPITAL
Equity funding into blockchain is here to stay
<1 year
# of yearsGP Bullhound
estimates
2009 2010
2011
2012
2013
2014
2015
2016
2017
2018
1-2 years
2-3 years
3-4 years
4+ years
Investments by major blockchain investors and post-ICO trading performance are positively correlated
Engagement of a reputable investor in a project appears to be a key determinant for success. It remains
to be seen if contributions of reputable investors improve projects or merely serve as a key orientation for
ICO investors
Long-term post ICO performance will likely reveal more details on the question whether reputable investors
increase the probability of long-term success
Source: Pitchbook, Cryptocompare, Coinmarketcap, ICO Bench, ICO Bazaar, ICO Drops and publicly available data Note: Includes ICOs with >1 USDm funds raised and ICO end date
between 2015 and 2017. 1) 60-day multiple of ICO price (adjusted for ETH price development, ICO volume-weighted). Performance multiples only include ICOs with available 60-day
trading data. Data as of March 5, 2018. 2) Only includes ICOs which specified a hard cap on their fundraise. 3) Defined as investors that invested in more than six blockchain projects.
(normalised vs. ETH)
Multiple(1)
Funding cap
reached(2)
#ICOs
(USDm)
Funds raised
Overall
1.7x
17
20%
250
Top venture capital
investors(3)
3.6x
50
43%
21
Other investors/
no investors
1.3x
14
17%
229
INVESTOR INFLUENCE
ICO performance is driven by reputation
CHAPTER 2
21
GP BULLHOUND: TOKEN FRENZY
INTRA-YEAR SENTIMENT
After peaking in October 2017,
the ICO market has cooled down
Monthly ICO count (1)
Funding cap reached (average per quarter 2017) (2)
Max.# of ICOs
October 2017
72
Jan-17
Apr-17
Jul-17
Oct-17
Q1
53%
18%
72%
72%
99%
100%
62%
9%
Q3
Q2
Q4
Source: TokenData, Cryptocompare and publicly available data. 1) Includes all ICOs in the database from tokendata.com which have been completed
and feature a specified ICO date. ICOs with unavailable funds raised are assumed to have raised < 5 USDm. 2) ICOs which exceeded their funding
cap are recognized as 100% in the average. Only includes ICOs which specified a hard cap on their fundraise. Major outliers are excluded.
ICO Volume > USD 5m
ICO Volume < USD 5m
ICO Volume > USD 5m
ICO Volume < USD 5m
In Q3 & Q4 2017 there was a large number of smaller, less successful ICOs
Average
65%
Average
22%
Many projects conducting an ICO specify soft and hard caps in their whitepaper. The former indicates the
minimum amount of funds required to pursue the project. Should this threshold not be reached, all funds
invested in the project are returned. The latter represents the upper boundary of funds required for the project.
Funds in excess of this figure are returned.
The chart below examines trading performance in relation to funds raised as a fraction of communicated hard
cap. The bar to the right shows the performance of projects that reached or exceeded their funding goals. It
should be noted that not all ICOs specify funding caps, essentially "taking all they can get". The largest ICO in
2017, Tezos, collected USD 232m without specifying the amount of funds the project would require.
Reaching (or in some cases exceeding) the funding cap is positively linked to trading performance. Projects
that reached less than 50% of their funding goal underperformed on average. In contrast, projects that
exceeded their pre-specified fund requirements were able to more than double the quote of their token
60 days after their ICO.
Average 60-day performance by % of funding cap reached
Source: Cryptocompare, Coinmarketcap, ICO Bench, ICO Bazaar, ICO Drops and publicly available data Note: Includes ICOs with specified hard
cap, >1 USDm funds raised and ICO end date between 2015 and 2017. 1) 60-day multiple of ICO price (adjusted for ETH price development, ICO
volume-weighted). Performance multiples only include ICOs with available 60-day trading data. Data as of March 5, 2018.
Multiple(1) (normalised vs. ETH)
# of ICOs
0-49%
50-99%
>100%
75
0.7x
41
1.8x
48
2.3x
FUNDING GOALS
ICO hype and performance
20
CHAPTER 2
23
GP BULLHOUND: TOKEN FRENZY
22
LEADING PROTOCOLS
& blockchain ecosystems
POTENTIAL CHALLENGERS
KEY BASE PROTOCOLS
Who dominates the market?
Source: GP Bullhound analysis based on Pitchbook, Cryptocompare, Coinmarketcap, ICO Bench, ICO Bazaar, ICO Drops and publicly available data
Note: Includes ICOs with >1 USDm funds raised and ICO end date between 2015 and 2017. 1) Defined as (market cap of ICO companies on base
protocol ) / (market capitalisation of base protocol). Data as of 5 March 2018. 2) Market share as of total market capitalisation
ETHEREUM
WAVES
BITCOIN
NEO
# of ICOs
to date
ICO volume
(USD)
Market cap
ratio (1)
Market cap
share (2)
Maternity of platform
(year of release)
201
3,213m
21.2%
18.1%
<0.1%
41.4%
0.02%
17.2%
1.0%
1.8%
63m
27m
38m
14
3
(2015)
3
(2015)
2
(2016)
9
(2009)
4
3
CHAPTER 3
25
GP BULLHOUND: TOKEN FRENZY
24
We have reached a turning point. Technology has
significantly advanced our civilisation; and yet, over the
last few decades, certain institutions have lost the trust
of vast swathes of the population. As a result, there are
a lot of people who believe in the philosophy of trust and
decentralisation this is the fundamental principle behind
the blockchain.
ConsenSys is a global organisation that specialises in
developing blockchain software primarily within the
Ethereum ecosystem for institutions, corporations, and
governments. It also dedicates a lot of time towards building
the infrastructure of the public Ethereum ecosystem,
ensuring that it can process around 6bn requests per day.
Ethereum has set itself apart from other blockchain
platforms as far more expressive and accessible. If you
can build a web or mobile application then you can build
a decentralised mobile application on Ethereum. Therefore,
it has captured the imagination of software developers
around the world, not only the early adopters of blockchain.
Leadership is certainly something that is very important
and that has contributed to the development of Ethereum.
Vitalik Buterin is an exceptional scientist who has led
the progress of many aspects of the Ethereum protocol.
However, he is only one of many immensely talented
leaders in Ethereum it is a collective ecosystem which
draws strength from the breadth and diversity of the
people operating on it.
One analyst estimated that the number of developers
working on the Ethereum protocol is 30 times larger than
its closest competitor, the IBM-backed Hyperledger fabric.
We have strived to retain Ethereum's founding principles
of friendliness and cooperation as it has grown. This focus
has ensured that we have maintained the diversity of
people operating on Ethereum, meaning governance
and leadership in this community do not rely on one single
person, but thrive on the collective input of different classes
of actors.
As a result, the only metric I truly pay attention to is the
number of developers operating in the Ethereum ecosystem.
Certainly, ConsenSys has expanded substantially over
the past couple of years and we now have around 700
employees spanning 28 countries around the world. Likewise,
the rise in monetary value of Ether the cryptocurrency
closely associated with the Ethereum protocol has
added value to the ecosystem and drawn the attention
of developers, entrepreneurs, and investors, all of which
are vital to our future success.
This growth has, of course, created some challenges.
Ethereum was built primarily as an elegant solution to
creating a blockchain protocol that reflected fundamental
principles of trust, privacy and confidentiality. While most
developers have spent the last three decades attempting
to build a global IT infrastructure, we instead focused on
harnessing cryptographic techniques that protected our
basic ethos but did not operate at scale.
One of our key objectives over the coming months will,
therefore, be building scalability back into our infrastructure.
There are solutions already being developed sharding,
for one, provides a potential solution to the problem of
scalability. Similarly, I believe that 2018 will see substantial
strides made in the development of an intranet that operates
between different blockchain systems this will also enable
the Ethereum protocol to scale.
Banks and financial institutions were the first to tap into
the potential of blockchain to create entirely new business
models. Currently, vast numbers of institutions are testing the
water and using private, permissioned blockchain platforms
to innovate. Across every industry from supply chains to
energy, insurance and education there is a drive to move
away from siloed digital infrastructure to collaboration on
distributed ledgers.
A similar phenomenon is taking place with the rise of the
ICO. While there is some irrational exuberance attached
to this new model, it is a revolutionary technology that will
create a paradigm shift. In my view, a model of businesses
offering services to consumers in a one-way transaction is
simply not going to last. In its place, a market sitting on a
protocol-driven, open platform with many stakeholders,
none of whom overly control or monetise the system will
develop. Today's developments and the rise of token
offerings is the start of a transformation.
When it comes to competition, Ethereum has built such a
strong network effect among thousands of developers that
it retains an exceptionally strong position ahead of other
similar protocols. There are some that emerge and create
a level of stability, such as Dfinity or RChain. However, these
projects have consistently struggled to build the community
that we have created through Ethereum.
Joseph Lubin
Co-founder Ethereum & Founder ConsenSys
SETTING THE PACE
for blockchain developers
WHY ETHEREUM?
Explanations for its dominance
Addressed scams
Apart from the DAO case, the Ethereum
community has been active in evaluating
the feasibility and legitimacy of newly
launched projects, offering an expert
view for those who want to listen.
Relative ease-of-use
Ethereum offers the easy-to-use scripting
language Solidity and, amongst others,
the ERC20 token standard which allows
developers to build decentralised
applications on top of Ethereum instead
of needing to build and maintain their
own blockchain.
1
Ethereum enjoys broad acceptance
in the community and can arguably
be described as the standard protocol
for decentralised applications. Strong
supporters like ConsenSys or the
Enterprise Ethereum Alliance further
drive the momentum.
Strong community
2
Better performance metrics
Ethereum offers some of the best block
time / speed ratios in the market (currently
below 15 seconds) and is the first offering
these advancements in performance.
The aim of Ethereum is 50 thousand
transactions per second with no loss
of decentralisation.
3
4
Clear vision, leadership
and credibility
While founders and key developers
of Ethereum might deny the leadership
aspect of their position, they've managed
to act coherently and consistently over
time offering a promise of long-term
security through multiple independent
development teams and preference
of algorithmic governance.
5
CHAPTER 3
27
GP BULLHOUND: TOKEN FRENZY
26
BLOCKCHAIN
SCALABILITY
CONSENSUS
EFFICIENCY
KEY CHALLENGES
to be solved
DECENTRALISATION
OF EXCHANGES
STAYING
PRIVATE
EFFECTIVE
GOVERNANCE
KEY CHALLENGES TO BE SOLVED
Addressing these topics will
help enable mass adoption
CHAPTER 4
29
GP BULLHOUND: TOKEN FRENZY
28
BLOCKCHAIN SCALABILITY
How to increase throughput
WHY IS IT DIFFICULT TO SCALE?
The shared database is split
into several parts, lowering the
amount of data each single
node has to store.
Transactions are regularly done
off-chain. The blockchain is
only used to settle disputes,
significantly lowering the load.
Chain agnostic
Already operating close to
its limit, leading to congestion
and delays
1.8m
1.2m
0.6m
max. capacity
-
Jan 17 Apr 17
July 17 Oct 17
Jan 18
Different aspects are tied to the scalability issue.
Improvements in one area negatively affect others
Multi-chain scaling
Off-chain scaling
ETHEREUM ACTUAL
DAILY TRANSACTION
THROUGHPUT
MAJOR SCALING CONCEPTS
SCALABILITY PROJECTS
Source: GP Bullhound analysis based on Etherscan and proprietary data.
1) Scalability initiatives by the Ethereum foundation.
Transactio
n
complexit
y
Transaction
throughput
SecurityPrivacyVerification timesTransactions
per second
20
2-4
56,000
Transactions
per second
Transactions
per second
2,800x
STATUS QUO
PLASMA
SHARDING
(1)
(1)
SCALABILITY
The ecosystem that we have today began with the
development of public blockchain technologies and the
production of cryptocurrencies. Public blockchains face
challenges, but fundamentally have far more potential
than private blockchain networks.
The public blockchain ecosystem has been forced to
address significant technological challenges. First is
the problem of scale: on-chain scaling the process of
increasing the capacity of a network through amending
the blockchain itself is a technically complex issue for
developers. Off-chain transactions offer a simpler solution
to create capacity, through harnessing something other
than the blockchain to scale, such as virtual payments. Yet,
this undermines the basic premise of using blockchain for
trust and decentralisation.
My research group is at the forefront of both on-chain and
off-chain scaling. I think on-chain scaling is critical to the
future of blockchain anybody who attempts to bypass
it is not operating with the correct principles. You can see
this playing out with Bitcoin. Any Tom, Dick or Harry will tell
you about the lightning network a payment protocol that
operates on top of Bitcoin. While Tom, Dick, and Harry may
be telling us to engage in the network and create payments
channels, I have never seen a mathematical proof for its
vision and my gut feeling is that this is nothing more than
a pipe dream.
A greater risk still is the existence of unchecked,
potentially fraudulent protocols. As we speak, the Tether
cryptocurrency is going through an investigation by the
US Commodity Futures Trading Commission. If Tether goes
down, it will take down multiple exchanges and the price
of Bitcoin will plummet. Likewise, there are many, many
pitfalls in the distributed systems that we have been
building. History is littered with badly designed systems,
and while we continue to develop with gut feelings,
we will face fundamentalsystem failures.
The ambition to create an entirely secure ecosystem
has similarly created challenges for the public blockchain
community. We can rely upon the ecosystem itself to
be secure, but the endpoints of the network the interface
for everyday users can remain unsecure. We may
spend decades waiting for these to become secure,
so developers have created coins that have an inbuilt
system to protect users.
Private institutions have attempted to bypass these
technical difficulties through creating closed networks and
using 'permissioned launching'. Permissioned launching
started with the notion of an industry approaching the
field and saying: "Looking at blockchain, there are several
features of the technology that we would like to cherry pick,
so long as we can disregard the difficult parts."
As a result, these industries are tweaking the technology
and harnessing private networks of 'validators' machines
that are tasked with keeping track of the blockchain. This is
not how the technology should work. While it may appear
to remove the need for a single central authority, the fact
that the data is smeared across five or ten or twenty people
does not make me sleep any easier at night.
Yet, there are countless businesses now creating
deployments of permissioned launching. I do not expect
them to be used for mission-critical applications, but there
will be plenty of applications that are far from mission-
critical. The Whoppercoin that Burger King developed for
example essentially a vehicle for customer loyalty points.
This is a perfect example of blockchain without purpose
it simply does not matter what happens to the data, so why
is it on the blockchain?
More promising progress is being made developing hybrid
architectures that combine a public and private blockchain
infrastructure. In these hybrid systems, you create a chain
that is routed on the public blockchain, then moved onto
a private blockchain before reverting back to the public
blockchain. For instance, a government may want to
record votes on a public blockchain, tally these votes on
the side on a private blockchain, before placing the results
of the tally back on the public blockchain.
It will take a very diverse and broad range of operators
to successfully deploy blockchain at scale. This is why we
have established the Initiative for Cryptocurrency and Smart
Contracts we are harnessing the diverse approaches
of around fifteen professors and about forty to sixty PhD
students, to carry out ground-breaking research and build
blockchain technology that lasts.
Prof. Emin Gn Sirer
Associate Professor at Cornell University,
Computer Scientist & Blockchain Researches
SCALING SOLUTIONS
Maximising throughput
CHAPTER 4
31
GP BULLHOUND: TOKEN FRENZY
30
DECENTRALISATION OF EXCHANGES
Solving the issues in cryptotrading
CHALLENGES TO BE SOLVED
CENTRALISED
HYBRID
DECENTRALISED
Liquidity
Tech flaws
Future changes to protocol
User friendliness
Key storage
Cross-chain transactions
KYC / AML / CFT
Fiat limitations
Miner front-running
Off-chain order manipulation
Centralised structures undermine the ground principles of blockchain
Other
Unfair trading
DECENTRALISED
EXCHANGE LAYERS
INTEROPERABITLITY
DECENTRALISED EXCHANGES
Stage-explained
Blockchain relevance
As of March 5, 2018
1,522 different tokens
USD 470.5bn
total market cap
2013
2014
2015
2016
2017
Number of crypto coins
and tokens
66
506
562
644
1,335
Source: GP Bullhound analysis based on Coinmarketcap and proprietary data.
1) MakerDAO develops the decentralised exchange Oasis DEX.
STATUS QUO
Blockchain today is facing several major hurdles. While it
whas demonstrated an exceptional theoretical potential,
it has yet to break into mainstream adoption. This is largely
due to the fact that the technology is struggling to develop
at scale with simple use cases.
The magnitude of development of viable use cases is
inversely proportional to how difficult it is for developers to
build projects on blockchain protocols. When working on
blockchain becomes easier, more projects are conceived,
more entrepreneurs enter the field and more likely it will
get for feasible relevant use cases to evolve. However, a
lot of projects in the space right now are focusing not on
end users, but rather on the protocol itself. These are teams,
often with academic backgrounds, that have raised funds
which they are using for research, concept development
and other pre-alpha activities. Many of these teams have
a very loose approach to the practical aspects of their
projects and will certainly fail to break into the mainstream.
On the other hand, it is yet difficult to build blockchain-
based applications comparable with their traditional
counterparts for several reasons mostly related to the
underlying base protocols like limited throughput,
transaction costs and so on. Also currently, individual
protocols operate in isolation and while they could offer
a lot of exciting functionality, they do not interface with
one another. This leads to applications built on siloed
protocols being too expensive to use compared to
"traditional" centralised solutions available.
This is the issue Polkadot being one of the Web3
Foundation's most prominent projects tackles. Started
about a year ago, Polkadot is a protocol that is guided
by a mission to enable faster interactions throughout the
blockchain ecosystem and make use cases easier to bring
into life. Polkadot seeks to create a network of interoperable
blockchains, where a single project or application could
benefit from advantages of different protocols. It does
this through a relay chain, which communicates and
coordinates consensus across the entire network, individual
parachains public or private blockchains that make up
the constituent parts of the overall network and bridges
that link to blockchains with their own consensus, such as
Ethereum.
All this is essentially a part of a greater, more complex
challenge the blockchain technology is facing - scalability.
The market has yet to solve the problem of limited
blockchain throughput (comparatively low number of
transactions processed). The industry needs to have
concrete roadmaps to address the topic efficiently. While
there are several teams working on the issue right now -
Polkadot enabling a network of blockchains, Ethereum
sharding, off-chain solutions, etc. - what we'll eventually
need is a combination of all these approaches. Currently,
it looks like splitting the block validation between the nodes
is the way to go forward. However, how do you guarantee
that the validation is accurate?
The problem of blockchain scaling goes hand-in-hand
with a trade-off between transaction complexity and
transaction security. The complexity might naturally vary
from one protocol to another: the Ethereum protocol is a
rigorous contract-based system, while other blockchains
are simpler value transfers. The security is a burden closely
tied with usability: how long am I, as a user, ready to wait
to ensure that the transaction was executed smoothly AND
in a secure manner?
Today, each blockchain requires a separate securing
community. For instance, Bitcoin and Ethereum have a
community of miners that provide computational power,
verify transactions and ensure the security of the ecosystem.
However, these communities are self-serving. If I want to
establish a new blockchain, whether public or private, I
need to persuade enough people to join the ecosystem,
maintain it and verify transactions.
Relay chains of Polkadot create a network of pooled
security through tying different blockchain ecosystems
into one. This makes it possible to deploy a new blockchain
which is secured not only by my own small community
of maintainers, but the entire Polkadot network. This
radically transforms the challenge of scalability through
guaranteeing security throughout a global network of
distinct blockchains.
There is every likelihood that the Polkadot network could
become the fabric that interconnects all the different
pieces of the ecosystem, while providing the needed
security. And we do believe that connected decentralised
systems are the future of the Internet.
This is why the Web3 Foundation aims at helping young
initiatives in the decentralised software space by educating
and nurturing them towards a clear future development.
We need widespread education both within the industry
to move it forward, as well as outside of it to make it more
lucrative for the traditional developers to join the booming
market.
We strongly believe that through the combination of
educational and tech projects, we will be able to unlock
blockchain's full potential and bring us to the future where
trustless, serverless and fully decentralised web is a reality.
Peter Czaban
Polkadot contributor & CEO Web3 Foundation
DEVELOPER TOOLS
Enabling cross-chain
(1)
CHAPTER 4
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GP BULLHOUND: TOKEN FRENZY
32
STAYING PRIVATE
Anonymity despite transparency
Source: GP Bullhound analysis based on proprietary data.
IMPORTANCE OF BLOCKCHAIN PRIVACY
Privacy coins provide a strong offering for concealing transactions. However,
extending these privacy tools to other data stored on the blockchain and being
able to securely share it with other entities in the network, such as regulators or
auditors, is not in their scope. These kind of services are offered by some players
as standalone services or additional layers to existing protocols.
A blockchain is a public database of transactions and therefore not private by
definition, since validators on the blockchain need to be able to verify these
transactions. At the same time, the connection between a blockchain address
and the person or organisation behind it is often missing. General Data Protection
Regulation ("GDPR") becoming effective in May 2018 will pose some key challenges
to the entire blockchain space.
Enterprises are in a field of tension between privacy and transparency, while
regulators have a clear need for more transparency in order to fulfil their tasks.
Publicly known addresses on the
blockchain protecting against
identity theft.
Insights into transactions to control
money-laundering, terrorist financing
and tax evasion.
Sensible consumer data stored on
the blockchain; consumers right to
be forgotten.
Anonymity of customers and
suppliers protecting trade secrets.
PRIVACY COINS
Enterprise
Regulator
Regulator
Enterprise
PRIVACY LAYERS
STATUS QUO
NEED FOR TRANSPARENCY
NEED FOR PRIVACY
Blockchain has a privacy problem. On the one hand, the
concept of creating a private network with hidden data
or transactions conflicts with the technology's founding
principles of openness, trust, and decentralisation. On the
other hand, we believe privacy will prove critical to the
ability of blockchain technologies to achieve widespread
adoption and scale.
We founded NuCypher to begin addressing this problem.
We have focused primarily on the issue of data privacy.
By default, the data that is created on distributed ledgers
is public, particularly when using the Ethereum protocol.
However, many of the projects harnessing these protocols
to develop decentralised applications are working with
sensitive data that needs to remain private.
For instance, a healthcare provider might be looking to
create a decentralised method of storing patient records.
This provider will be seeking to benefit from the security
and efficiency of a distributed ledger. Yet, the records that
it is storing must be private, confidential, and encrypted.
NuCypher provides a platform for harnessing the public
blockchain with privacy.
The issue of privacy of transactions in a blockchain
ecosystem has recently given rise to a number of
cryptocurrencies focused on providing anonymity and
inscrutability. These 'privacy coins', such as Monero, Dash,
and Zcash, offer a vehicle to keep the personal information
of users hidden during transactions. However, there is an
obvious concern that this anonymity will simply be used to
obscure criminal activity and it is certainly the case that
a lot of their current usage is for transactions on the
black market.
As a result of this concern, there has been some discussion
of building back-doors into the currencies to allow certain
parties, such as a regulator, to freely view the data behind
a transaction. There is a simple problem with this approach.
Once you have built a back-door into the technology, the
likelihood is that someone else is also going to find it. This
discovery will either enable a bad actor to take advantage
of the back-door, or it will simply be closed off by users of
the network who want to maintain its privacy. Essentially, the
idea of having real cryptographic privacy is fundamentally
opposed to the idea of introducing back-doors.
If there was to be some regulation of privacy coins, it would
be a non-technical solution as attempting to adapt the
protocol is more or less impossible. In order to maintain the
mathematical or cryptographic integrity of transactions, you
could introduce 'know your customer' checks. In traditional
financial services, these checks are used to ensure that
banks know and verify the identity of their consumers. In
blockchain, this would mean that vendors or exchanges
would have a duty to know their customers.
In the future, NuCypher could plug into this process to
create a central order book for vendors and exchanges
that is encrypted to the public but accessible by an
approved list of users. While this is a potential use case, we
do not currently have anyone using our solution in this way.
For now, we are largely focused on providing our users with
a way to store private data on public blockchain protocols.
We have been fortunate to work with supportive, insightful,
and influential investors, from specialist funds like Polychain
Capital and FBG Capital to traditional groups such as Base
Ventures and Y Combinator. As with any tech company,
these investors support our growth strategy, refer potential
hires, and help us with our legal frameworks. One area
that has required more specialist support, however, is our
upcoming token sale.
The majority of token sales currently taking place are simply
a vehicle to raise cash quickly. If you are seriously trying to
build a sustainable protocol with a sustainable network, you
need to think very carefully about how you actually want
to distribute those tokens who should have them, how
many should each person have the foundations of crypto-
economics. These are technical hurdles that have required
us to lean on specialist blockchain investors.
Our token sale is a serious commitment to creating
blockchain technologies with genuine strategic value for
our users. The future success of the blockchain will rest on its
ability to deliver a trusted solution, whether private or public,
to developers and enterprises around the world.
MacLane Wilkison
Founder NuCypher
PRIVACY SOLUTIONS
Encryption will be key
CHAPTER 4
35
GP BULLHOUND: TOKEN FRENZY
34
EFFECTIVE GOVERNANCE
Who owns blockchain projects?
NAVIGATING TOKEN TYPES
FORESEEABLE TOPICS
GOVERNANCE FOCUSED PROTOCOLS
GOVERNANCE TECHNOLOGY
There are many types of coins and tokens in the market which differ in
rights granted to token holders. Within the respective groups, differences
in entity structure and jurisdiction must be taken into account.
The legal structure behind ICO projects is often
not clear. In many cases foundations, which cannot
distribute raised funds, are used
Current lack of common standards impedes
transparency information in whitepapers is usually
insufficient for proper assessments
Currency serving as medium of
exchange and/or store of value
Fiat currencies
Financial instruments
CURRENCY TOKENS
ASSET TOKENS
UTILITY TOKENS
Tokenised shares, debt or other investment
contracts on the blockchain, allowing issuers
to forego regulated financial markets
Exchange medium within the crypto-economy
of specific projects
Prepaid software /
service fees
Token holders currently have no rights to participate
in corporate decisions
No influence on personnel set-up of entities
by token holders
Stage-explained
Communication standards
Description
Analogy
Type
Participation in decision-making
Management supervision
Source: GP Bullhound analysis based on proprietary data.
STATUS QUO
Governance is the lifeblood of blockchain. This is not simply
a technology, but a movement founded upon the principle
of creating the means to decentralise power and give it
back to the people through technology.
At Aragon, we seek to provide the tools to empower
people across the world to easily and securely manage
the structure of communities and organisations. We have
begun to see progress made towards creating these
decentralised structures. In Malta, the government has
begun to enable people to run legal cryptocurrency
projects and exchanges, while, in Switzerland, lawmakers
are integrating decentralised systems into existing practices.
As a result, there is evidence that decentralised systems,
representative of the same legal structure that a body,
corporation, or government already had, can be
implemented. This evidence suggests that we are moving
to a future where there are simply decentralised digital
structures, but we are not there yet.
I believe that a critical barrier to the widespread adoption
of blockchain technology is solving the issue of the
potential for volatility and instability. In our own community
of governance, the memory of the hacking of the DAO
has meant that the word DAO has become a taboo.
Meanwhile, everyday users have a persistent and real
fear of losing their money in cryptocurrencies. Visa's
choice to end its relationship with WaveCrest, a card
provider associated with crypto-wallets, left thousands
of people out of pocket.
To remedy this volatility, we must begin to instil greater
transparency into the blockchain ecosystem. The failure
of the DAO came as a result of someone developing a
token sale where the code left an entry point that obscured
a backdoor allowed to extract funds. Only experts with
substantial technical knowledge might have had any
chance of spotting this backdoor. People simply did not
have the time or ability to fully evaluate the nuances of
the network, which led to someone being able to take
the money and run.
There are, however, projects that are doing a lot of good
work to create fully transparent blockchain technologies.
Santiment's Project Transparency has begun to build a
system for its community to safely and securely trade
cryptocurrencies, while MakerDAO has been setting an
excellent example of creating a stable, transparent
digital currency.
Through the Aragon community, we have also sought to
build a transparent network from the ground up. From the
outset, we focused on our own community governance
model, laying out the ways in which we would incorporate
the community in the decision making.
This begins with setting out the code base on a public open
source and continues through monthly meetings on online
forums and live streams. We also produce quarterly reports
that outline how we have used our funds. Underpinning this
all, we have our transparency framework a transparency
code that allows anyone to view transactions that have
been taking place in our network.
Providing the community with this information helps them
to make better decisions and moves us towards a system
where the network has the power. Ultimately, we will move
to a point where we cannot control the actions that take
place on Aragon. However, we will have sustained the true
lifeblood of the blockchain governance.
Tatu Krki
Communications Lead Aragon
BLOCKCHAIN
GOVERNANCE
DAO and more
CHAPTER 4
37
GP BULLHOUND: TOKEN FRENZY
36
CONSENSUS EFFICIENCY
Overdue transition to Proof of Stake
KEY TOPICS
PoS is a central component in many efforts to improve scalability.
Major protocol changes on running blockchains, such as transitioning to a new consensus mechanism,
are difficult to implement and bear risks.
Final implementation of first switch from PoW to PoS on large scale protocol is still outstanding. Ethereum
is currently testing Casper (PoS mechanism) in some shards of its blockchain.
Miners in PoW-based ecosystems are likely to oppose transitions to PoS. For Ethereum, this might lead
to further hard forks.
Major protocols, including the
Bitcoin blockchain, operate under
PoW, Switching public protocols
from PoW to PoS is complex due to
the major changes in code required.
PoW rewards miners for solving difficult
computational problems that secure
and validate every new block.
If a single party provides the majority
of all mining power it can effectively
'take control' of the entire blockchain
in what is called a 51% attack. This
becomes a relevant threat in the
presence of centralised mining pools.
The incentive structure for validators
in PoS-based blockchains makes 51%
attacks highly unlikely.
However, the consensus mechanism
is fairly novel and subject to other
security issues. There are proposed
solutions for most of these problems
which are yet to be tested.
PoS requires validators to 'stake'
a certain amount of their tokens
to validate new blocks. This stake
effectively serves as collateral and
incentive to validate in line with the
underlying protocol.
Many younger protocols, such as
NEO and WAVES, already operate
under PoS.
Description &
functionality
Security
Transaction cost
Validation speed
Source: GP Bullhound analysis based on proprietary data.
HIGH
STATUS QUO
LOW
HIGH
LOW
Proof of Work
Proof of Stake
Transition to
PoS via Casper
currently ongoing
Transition to
PoS via
Casper
currently
ongoing
OUTLOOK
Final remarks
CHAPTER 4
38
39
GP BULLHOUND: TOKEN FRENZY
We define corporate ICO as the transition of a
formerly private and permissioned chain onto a
public blockchain. This ICO will also likely be the
first ICO based upon a consortium chain which
will see several corporates join forces in a private,
permissioned blockchain before setting the protocol
free for the wider universe of early adopters. The
automotive, raw materials or luxury goods sector
might be the most likely industries driving such
a project.
People will become more cautious towards second
generation protocols. Aspirational upstarts such as
Dfinity, RChain, Cardano and Tezos will have to do
much more than simply technically outperform to
win market share. They will, however, keep the
pressure on Ethereum to implement long overdue
changes. Ethereum will keep its position as the
clear leader and become the most valuable
cryptocurrency by market cap.
2018 will see widespread usage of token airdrops.
Since token issuing should be seen as the means to
create network effects, a sale of tokens with no utility
value seems unsustainable. An airdrop may be a
preferable option to include current and future
stakeholders and maximize network effects. 2018
efforts will aim to ensure the best possible distribution
and allocation, since early airdrop models show an
ability to create immediate impact and exceptional
growth stories.
ICO funding is here to stay
but it will mature significantly
and rapidly
2018 will see the first
corporate ICO
2018 will see a number of
important hard forks and first
attempts at M&A activity
Mass market wipe out
No next generation
beast protocol in sight
2018 will see airdrops
become new normal
for token distribution
The next killer app
Smart money will keep
dominating blockchain
THE YEAR IN BLOCKCHAIN
GP Bullhound Outlook
No longer will companies be able to launch an ICO
off the back of a whitepaper. Exceptions confirm
the rule where the stage of the company or product
will be largely meaningless versus the size of the ICO
itself. We expect to see several giant ICOs far beyond
Telegram's USD 2bn round by April 2019. Key for
success will be execution track-record, transparency
and credibility of founders. Elon Musk would qualify
for such a raise.
The mechanisms around forking will mature
significantly including activities that resemble
"hostile takeovers" and "activist hedge funds".
Much like early M&A deals in the 1980s, protocol
ecosystems will likely develop by means of hard
forks together with friendly investor support, raising
stakeholder awareness, leveraging developer talent
and smart airdrop strategies. Since the code is public,
potential counter measures within the code are
entirely transparent.
Finally, cryptocurrencies will experience a heavy
correction of up to 90 per cent in the next 12 months
and very few companies will survive this correction.
While this correction will be critical to cutting through
the hype, its lack of impact on financial institutions will
create new phenomena that we have never seen
in any previous bubble burst. Nonetheless, once this
'crypto-winter' passes, the growth dynamics for the
precious few survivors will be unprecedented.
After the ICO as the first killer app in 2017, 2018 will
be defined by asset tokens or tokenization of assets
("TOA") offerings, also strongly driving the adoption
of Ethereum for financial applications. This will
cause the cryptocurrency market to spike rapidly
and peak at a total market cap far beyond USD 1
trillion and the volume of tokenized assets will exceed
ICO volumes of 2018. At the same time, non-fungible
tokens will conquer the blockchain and create
the first use cases capable of driving mass
consumer adoption.
Venture capital is not going anywhere. However,
we believe that there needs to be a paradigm
shift. The industry must aspire to a more inclusive
and idealistic form of VC investing that supports
founders with the knowledge and expertise to
execute successful distributed ledger technologies.
Average equity funding pre-ICO will rise to over
USD 20m for successful ICOs in 2018.
CHAPTER 5
1
8
2
5
3
6
4
7
41
GP BULLHOUND: TOKEN FRENZY
40
CREATING THE INTERNET OF VALUE
Applications for blockchain
Internet of
Information
Internet of
Things
Internet of
Value
Exchange of
information
(based on
Internet
protocol)
Connectivity
of devices
(based on
specific
protocols)
Creation of
digital assets
(based on
blockchain
protocols)
Key issues where
distributed ledger
technologies
add value
EVOLVEMENT OF FUNCTIONALITIES OF THE INTERNET
SELECTED NEAR-TERM USE CASES & COMPARABLE MARKET
FUNGIBLE TOKEN USE CASES
NON-FUNGIBLE TOKEN USE CASES
While the majority of the market has clearly focused on fungible token applications so far, we have seen first use cases
being created via non-fungible tokens. Non-fungible tokens have mostly emerged in the collectibles space in form of
e.g. Cryptokitties. We expect the non-fungible phenomenon to spread outside of the collectibles space and find use in
further blockchain applications. Blockchain applications for ownership and identity solutions will only be fully enabled by
non-fungible token models.
Fundraising
Token distribution through
ICOs as an independent
means of raising funds
Tokenisation of assets
Tokens backed by real
assets (debt, real estate,
commodities, art, etc.)
Exchanges
Decentralised trading
and settlement of tokens
and tokenised assets
Collectibles
Unique digital assets with
intrinsic value properties
(e.g. sports cards,
cryptokitties, etc.)
Ownership record
Tokens as ownership record
for specific assets (e.g. real
estate, luxury goods, cars)
Identity record
Personal records and
identifying data, verifiable
through unique tokens
USD 86bn
Global venture capital
funding (2017)
USD 800tn
Global structured products
issuance (2017 est.)
USD 75tn
Global stock trading
volume (2016)
USD 200bn
Annual spend on
collectibles (2016, global)
USD 660bn
Real estate transactions
(2016, global)
USD 16bn
Identity theft damages
(2016, US only)
CHAPTER 5
Source: Worldbank, JLL, Javelin Strategy & Research, Business Insider
COMMENT
Surge in blockchain popularity
Over the past year, the world has become
obsessed with blockchain technology. While the
tech itself is not new, experts admit that its mass
adoption could be compared to the rise
of the internet in the 1990s.
Blockchain technology bears a potential that is
hard to evaluate in its amplitude. It offers to change
our everyday lives in a multitude of ways, from
the way we buy and sell to the way we participate
in politics and state governance.
Promising to erase intermediaries and borders,
the technology suggests a new definition of trust
and transparency, that will impact both our
online and offline lives.
Sebastian N. Markowsky
GP Bullhound
Need for decentralisation
Need for transparency
Need for immutability
Need for viable smart contract
functionality
43
GP BULLHOUND: TOKEN FRENZY
42
We took an in-depth look at the state of blockchain technology to date. Areas of focus were
funding of blockchain projects, both from venture capital investors and through ICOs, and key
issues that will determine the success and adaptation of the technology going forward. Our goal
is to provide an overview of relevant characteristics and key trends in the blockchain sector and
offer insights into what is currently happening with regards to base protocol developments and
show promising distributed ledger concepts and people that will likely shape the future
development of the technology.
INVESTMENTS
Through our investment team, we provide investors with
access to the most ambitious privately-held technology and
media companies. We currently manage four closed-end
funds for a total value of USD 100m and our Limited Partners
include institutions, family offices and entrepreneurs.
EVENTS & RESEARCH
Our events and speaking activities bring together thousands
of Europe's leading digital entrepreneurs and technology
investors throughout the year. Our thought-leading research
is read by thousands of decision-makers globally and is
regularly cited in leading newspapers and publications.
METHODOLOGY
ABOUT US
GP Bullhound
GP Bullhound is a leading technology advisory and investment firm, providing transaction advice
and capital to some of the best entrepreneurs and founders. Founded in 1999,the firm today has
offices in London, San Francisco, Stockholm, Berlin, Manchester, Paris, Hong Kong, Madrid and
New York.
WE HAVE INCLUDED:
Companies developing proprietary blockchain technology
and related services comprising smart contract functionality
and where the public and decentralised nature of the
planned blockchain project will benefit from a token
distribution event.
We have not looked at permissioned blockchain
companies, protocol technologies or projects. Our
analysis of venture capital funding is mainly based on
publicly available data and Pitchbook. Data on ICO
rounds was sourced from various online databases
as well as the relevant whitepapers.
We focused on funding rounds between 2015 and 2017.
ICO performance analyses exclude companies with less
than USD 1m funds raised.
CAVEATS: Our sources only include public data (e.g. press
articles, public databases and websites). The accuracy of
the data sets underlying our analysis is therefore limited to
the disclosed data.
MERGERS & ACQUISITIONS
We act as a trusted adviser to many of Europe's leading
technology companies in competitive international sale
and acquisition processes. The firm has completed 380
successful M&A transactions to date, worldwide, with a
total value of over USD 17bn.
CAPITAL TRANSACTIONS
We advise companies and their owners on capital related
transactions including venture capital, growth capital,
acquisition funding, secondary block trades and Initial
Public Offerings. The firm has completed 110 rounds of
financing for technology companies to date, with a total
value of USD 1.4bn.
SEBASTIAN MARKOWSKY
Director
HANNES FELSBERG
Analyst
SIMON MIREMADI
Associate
BULAT MARDANOV
Analyst
ELENA BOCHAROVA
Analyst
FELIX LUTJEN
Intern
OUR METHODOLOGY AND SOURCES
AUTHORS
Special thanks to Joe Lubin and the ConsenSys-Team, Prof.
Emin Gn Sirer, Peter Czaban, MacLane Wilkison and Tatu
Krki, our interview partners featured in this report.
Big thank you also to the further contributors to the report that
have provided great insights themselves or been instrumental
in providing access to the knowledge carriers in the space:
Jan Karnath, Hugo Amsellem, Bernino Lind, Konstantinos
"Dino" Mihalopoulos, Stefan George, Gero Decker,
Fabio Federici, Philipp Moehring, Mikko Alasarella, Fabian
Vogelsteller, Alex Felix, John Quinn, Mali Marafini, Stefano
Bernardi, Lorenzo Sanna, Robert Henker, Adrian Fako, Gavin
McDermott, Kaan Narin, Kai Chan, Barren Jeter, Eli Turlington,
James Knight. Thanks a million and looking forward to exciting
times ahead with all of you.
ACKNOWLEDGEMENT
CHAPTER 5
45
GP BULLHOUND: TOKEN FRENZY
44
HUGH
CAMPBELL
Managing Partner

CLAUDIO
ALVAREZ
Partner

SIMON
NICHOLLS
Partner

ALESSANDRO
CASARTELLI
Director

JAVED
HUQ
Vice President

PAUL
GAILLARD
Associate

JAIME
SENDAGORTA
Associate

PIERCE
LEWIS-OAKES
Analyst

JACOB
LOVENSKIOLD
Analyst

MATHILDE
JAKOBSSON
Event Manager

SETH
ALPERT
Senior Advisor

ANN GREVELIUS
Senior Advisor

CHRISTIAN
LAGERLING
Co-founder &
Senior Advisor
MIKE
MORTELL
Senior Advisor

CECILIA ROMAN
Senior Advisor

REDA BEN
LARBI
Analyst

ELENA
BOCHAROVA
Analyst

KYLE
BOOYSENS
Analyst

CARL
ELFVING
Analyst

JOFFREY
EZERZER
Analyst

HANNES
FELSBERG
Analyst

HAMPUS
HELLERMARK
Analyst

CHRISTOPH
GRUNEWALD
Associate

OKAN
INALTAY
Associate

MARVIN
MAERZ
Associate

SIMON
MIREMADI
Associate

ADAM
PAGE
Associate

DIPAM
PATEL
Associate

ED
PRIOR
Associate

OLOF
RUSTNER
Vice President

JOY
SIOUFI
Vice President

JOHANNES
KERMARK
Vice President

KARL
BLOMSTERWALL
Associate

FELIX
BRATELL
Associate

MATTHEW
FINEGOLD
Associate

IMAN
CRISBY
Vice President,
Marketing

RAVI
GHEDIA
Vice President

ERIC
CROWLEY
Vice President

FRAENZE
GADE
Vice President,
Events

DAVE
NISH
Vice President,
Technology

CHRIS
PARK
Vice President

OSKAR
HERDLAND
Director, ECM

NICK
HORROCKS
Director

ELSA
HU
Director

ALON
KUPERMAN
Director

PER
LINDTORP
Director

SEBASTIAN
MARKOWSKY
Director

NIKOLAS
WESTPHAL
Director

CHRIS
GRAVES
Executive Director

MIGUEL
KINDELAN
Executive Director

CARL
WESSBERG
Executive Director

OLIVER
SCHWEITZER
Executive Director

ALEXIS
SCORER
Executive Director

JONATHAN
CANTWELL
Director

GUILLAUME
BONNETON
Partner

ALEC
DAFFERNER
Partner

JOAKIM
DAL
Partner

SVEN
RAEYMAEKERS
Partner

JULIAN
RIEDLBAUER
Partner

ANDRE
SHORTELL
Partner

GREG
SMITH
Partner

MANISH
MADHVANI
Managing Partner

PER
ROMAN
Managing Partner

SIR MARTIN
SMITH
Chairman

STAFFAN
INGEBORN
Non-Executive
Director

MARK
SEBBA
Non-Executive
Director

GRAEME
BAYLEY
Partner &
Group CFO

ROBERT
AHLDIN
Partner

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CHAPTER 5
DISCLAIMER
ADAM
BIRNBAUM
Director

BEN
PRADE
Director

BULAT
MARDANOV
Analyst

RACHAEL
SHAPIRO
Analyst

OUR TEAM
PUNIT
GHUMRA
Vice President,
Finance
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MORENO
Vice President,
Strategy
46
OUR MISSION
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entrepreneurs
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